Egypt’s CDS, bond mar­kets price in risk from tourism hit

Kuwait Times - - BUSINESS -

LON­DON: Egyp­tian debt-in­sur­ance costs surged to 18-month highs yes­ter­day and dol­lar bond prices fell sharply as in­vestors priced in the dam­age done to the coun­try’s vi­tal tourism industry by a Rus­sian plane crash in Si­nai that killed 224 peo­ple. In­ves­ti­ga­tors are “90 per­cent sure” a noise heard in the fi­nal sec­ond of a cock­pit record­ing was an ex­plo­sion caused by a bomb, a mem­ber of the in­ves­ti­ga­tion team told Reuters on Sun­day.

The Bri­tish, Ger­man and Rus­sian gov­ern­ments are evac­u­at­ing their na­tion­als from the coun­try, a huge blow to tourism around the Red Sea re­sort of Sharm Al-Sheikh, one of the Egyp­tian econ­omy’s few bright spots.

Five-year Egyp­tian credit de­fault swaps traded at 383 ba­sis points, up 12 bps from the pre­vi­ous close - the high­est since April 2014. Tourism di­rectly com­prises 6 per­cent and in­di­rectly 12 to 13 per­cent of Egypt’s econ­omy. It had just started to re­cover af­ter po­lit­i­cal tur­moil sparked by the 2011 Arab Spring upris­ings.

“The re­sult­ing loss in for­eign cur­rency rev­enues will place the coun­try’s ex­ter­nal po­si­tion un­der added pres­sure and means that a fur­ther de­val­u­a­tion of the pound is look­ing in­creas­ingly likely,” Ja­son Tu­vey, Mid­dle East econ­o­mist at Cap­i­tal eco­nom­ics told clients. Tourist ar­rivals in Tu­nisia slumped 40 per­cent af­ter the beach­front mas­sacre of tourists ear­lier this year, Tu­vey noted. A sim­i­lar de­cline in Egypt could see ex­port rev­enues - the cat­e­gory un­der which tourism re­ceipts are counted - fall­ing $3.5 bil­lion, or 1.3 per­cent of GDP, in the com­ing year, he said. Egypt al­lowed the pound to de­pre­ci­ate on Oct. 23 to 7.83 per dol­lar from 7.73, a move that was needed to pre­serve dwin­dling re­serves. But the cur­rency is chang­ing hands in the par­al­lel mar­ket around 8.5 per dol­lar.

Hard cur­rency re­serves have dwin­dled to just over $16 bil­lion, enough to cover just three months of im­ports. The dol­lar rose 1.6 per­cent against the pound in the six-month NDF mar­ket, putting the ex­change rate at 9.55 . One-year NDFs quoted the pound at 10.5 per dol­lar, a move of 5 per­cent.

Egyp­tian dol­lar bonds also fell, with the 2020 and 2025 is­sues down around one cent on the day . Five- and 10-year trea­suries were lit­tle changed at a lo­cal auc­tion, how­ever. The coun­try is un­likely to de­fault, since it can prob­a­bly still count on Gulf al­lies such as Abu Dhabi and Kuwait for sup­port, even if th­ese coun­tries are suf­fer­ing the ef­fects of lower oil prices. Cairo stocks lost 2.8 per­cent, adding to Sun­day’s 2.6 per­cent fall. — Reuters

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